Q2 2025 Toll Brothers Inc Earnings Call
[music].
Good morning, everyone and welcome to the toll brothers second quarter fiscal year 2025 conference call.
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Douglas Yearly: At this time I would like to turn the floor over to Douglas yearly.
Speaker Change: Please go ahead.
Douglas Yearly: Thank you Jamie good morning.
Speaker Change: Welcome and thank you all for joining US with me today are Marty Connor Chief Financial Officer, Rob Powerhouse, President and Chief Operating Officer, Wendy Marlett, Chief Marketing Officer, and Gregg Ziegler Senior VP Treasurer and head of Investor Relations.
Speaker Change: As usual I caution you that many statements on this call are forward looking based on assumptions about the economy.
Speaker Change: World events housing and financial markets interest rates, the availability of labor and materials inflation and many other factors beyond our control that could significantly affect future results.
Speaker Change: Please read our statement on forward looking information in our earnings release of last night and on our website to better understand the risks associated with our forward looking statements.
Speaker Change: I am pleased with our performance in the second quarter.
Speaker Change: In what proved to be a challenging environment, we met or exceeded our guidance across all key metrics.
Speaker Change: We delivered 2899 homes at an average price of approximately $934000 generating record second quarter home sales revenue of $2, seven $1 billion or $236 million better than the midpoint of our guidance.
Speaker Change: We posted an adjusted gross margin of 27, 5%.
Speaker Change: In an SG&A margin of nine 5%, a 25 and 80 basis points better than guidance respectively.
Speaker Change: And we earned $352 $4 million or $3 50.
Speaker Change: Per diluted share.
Speaker Change: Adjusting for the $175 million pre.
Speaker Change: Pre tax land sale gain we recorded last year, our second quarter earnings per share were a record.
Speaker Change: We believe these results highlight the strength of our broadly diversified luxury product offerings, our balanced portfolio of build to order and spec homes and our strategy of prioritizing sales pace and margin in the current environment as we seek to maximize returns.
Speaker Change: They also reflect the financial strength of our customers.
Speaker Change: Our results and the strength of our backlog also provide us the confidence to reaffirm all of our guidance for fiscal 2025.
Speaker Change: Including home sales revenue of $10 $9 billion at the midpoint.
Speaker Change: On adjusted gross margin of 20, 725% and earnings of approximately $14 per diluted share.
Speaker Change: Turning to market conditions in the second quarter, we signed 2650 net agreements for $2 $6 billion.
Speaker Change: Approximately 13% in units and 11% in dollars compared to last year's strong second quarter.
Speaker Change: We experienced softer demand in the second quarter due to a decline in consumer confidence driven.
Driven by increased economic uncertainty.
Speaker Change: These conditions have continued into our third quarter.
Speaker Change: In this environment, we believe prioritizing price and margin over pace makes the most strategic sense.
Speaker Change: We are confident that our balanced approach will allow us to continue to successfully navigating this market.
Speaker Change: Our average sales price in the quarter was approximately $983000.
Speaker Change: Compared to $1 million in our first quarter at $967000 in the second quarter of fiscal 2024.
Speaker Change: Given the softer demand environment, we modestly increased incentives in the quarter.
Speaker Change: Overall incentives were approximately 7% so the average sales price up from our recent average of 5% to 6%.
Speaker Change: As we discussed last quarter, we have been reducing our spec starts to match local market conditions are.
Speaker Change: Our spec strategy is calibrated to effectively balance the need to add a quick move in homes available to meet buyer demand while protecting margins.
Speaker Change: Over the past decade, we have worked hard to build a nationwide platform with operations in over 60 markets in 24 States. We now serve all buyer groups with a broadest home offerings in the industry and prices that range from the 300000 to over $5 million.
Speaker Change: We have entered new markets and expanded our offerings, while enhancing all of that sets us apart as America's luxury homebuilder.
Speaker Change: Exceptional brand, our affluent customer base prestigious locations distinctive architecture unrivaled choice.
Speaker Change: And an extraordinary customer experience.
Speaker Change: We've executed this growth strategy, while derisking, our balance sheet, improving capital efficiency and returning capital to stockholders.
Speaker Change: Our performance in the second quarter and over the past many years has demonstrated the competitive advantages of our business and brand and driving high returns as well as our ability to navigate through challenging markets.
Speaker Change: And while the near term outlook for the housing market remains cloudy due to the well known affordability pressures and the volatile macro environment. We continue to believe the long term outlook for new home for the new home market remains positive, particularly for our luxury niche.
With many entry level buyers struggling with affordability challenges.
We are pleased to be serving an affluent consumer.
Speaker Change: Over 70% of our business serves the move up empty nester segments.
Speaker Change: These buyers are wealthier a greater financial flexibility and most of the equity in their existing homes.
Speaker Change: The remaining 25% to 30% of our business serves the more affluent or older first time buyer.
Speaker Change: The financial strength of our customer base as highlighted by our industry low cancellation rate high percentage of all cash buyers and low ltvs for those who take a mortgage.
Speaker Change: Consistent with the past several quarters approximately 24%.
Speaker Change: Of our buyers paid all cash in the second quarter.
Speaker Change: Oh from our long term average of approximately 20%.
Speaker Change: The ltvs of buyers, who took a mortgage in the quarter was approximately 70%.
Speaker Change: Our contract cancellation rate was two 8% of.
Speaker Change: Beginning backlog.
Speaker Change: In addition, the average spend on design studio selections structural options and lot premiums was approximately $200000 per home in Q2.
Speaker Change: System with our first quarter.
Speaker Change: These upgrades benefit our margins as they tend to be highly accretive.
Speaker Change: We continue to expect community count growth to help drive results in fiscal 2025 and beyond.
Speaker Change: We remain on target to reach our year end guidance of approximately 440 to 450 communities.
Speaker Change: Which would represent an 8% to 10% increase versus fiscal year end 2024.
Speaker Change: We project similar community count growth in fiscal 'twenty 'twenty six.
Speaker Change: We also continue to see modest improvements in our construction cycle times as we focus on increasing production efficiency.
Speaker Change: We have not yet seen any impact from potential tariffs on building cost or product availability.
Speaker Change: While it is difficult to predict where tariffs will land and the precise impact to our business. We do not believe we will see any significant impact in fiscal 2025.
Speaker Change: Turning to land at our second quarter, and we controlled approximately 78600 lots, 58% of which were optioned over.
Speaker Change: Over the past years excuse me over the past year, we have increased our percentage of option lots from 48% to 58% of our total lot count.
Speaker Change: Consistent with our focus on structuring land deals in more capital efficient ways in order to enhance returns.
Speaker Change: Our land position allows us.
Speaker Change: We continue to be highly selective and disciplined as we approach new opportunities in today's environment, we have tightened our underwriting standards and are reducing land spend on new deals, which.
Speaker Change: Which we expect to primarily impact fiscal 2026 land spend.
Speaker Change: At quarter end, we held approximately $686 million of cash and cash equivalents and our net debt to capital ratio was 19, 8%.
Speaker Change: We continue to generate strong operating cash flows is provides us plenty of opportunity to both grow our business and return capital to stockholders during.
Speaker Change: During the quarter, we repurchased $177 million of our common stock.
Speaker Change: Given our strong financial position healthy projected cash flow and our focus on returning capital to stockholders, we are increasing our projected share repurchases in fiscal 2025 from $500 million to $600 million.
Marty: With that I will turn it over to Marty.
Marty: Thanks, Doug.
Marty: And congrats on today being the 35th anniversary of your first day and told and your 68 conference call.
Yeah, we had a strong second quarter, beating our guidance for deliveries homebuilding revenue adjusted gross margin SG&A and earnings.
Marty: In the quarter, we delivered 20, 899 homes and generated home sales revenues of $2 $71 billion.
Marty: Up nearly 10% units and two 3% in dollars compared to last year.
Marty: Were second quarter Records.
Marty: At the midpoint, we delivered nearly 300 more homes in our guidance with $236 million of home sales revenue.
Marty: The average price of homes delivered in the quarter was approximately $934000.
Marty: A bit below the low end of our guidance as we delivered more homes in our mountain and mid Atlantic regions than anticipated.
Marty: We signed 2600 50 net agreements for $2 $6 billion in the quarter down.
Down 13% in units and 11% in dollars compared to the second quarter of fiscal year 2024.
Marty: The average price of contracts signed in the quarter was approximately $983000 up one 6% compared to last year.
Marty: And second quarter, and our backlog still get stood at $6 $84 billion and 6063 homes.
Marty: One 7% in dollars and 15% in units compared to a year ago.
Marty: The average price of the homes in our backlog was $1.130 million a company record.
Marty: Our second quarter adjusted gross margin was 27, 5%, which was 25 basis points better than guidance.
Marty: Our Q2 gross margin exceeding exceeded guidance, primarily due to positive mix strong cost control and increased leverage from higher than projected revenues.
Marty: Write offs in our home sales gross margin totaled $9 $8 million in the quarter as compared to $28 $4 million in the second quarter of 2024.
SG&A as a percentage of home sales revenue was nine 5% in the second quarter, and 80 basis points better than guidance.
Marty: Again, reflecting our focus on cost controls and leverage from higher than expected home sales revenue.
Marty: Second quarter, JV land sales and other income was $29 million versus our breakeven guidance approximately $15 million of this gain was attributable to the sale of a stabilized asset in one of our apartment living joint ventures with the remainder primarily attributable to interest income and income.
Marty: From our mortgage title and city living operations.
Marty: Our tax rate in the second quarter was approximately 26, 2%.
Marty: Our balance sheet is very healthy.
Marty: In the second quarter, and we had $2.8 billion of liquidity, including approximately $686 million of cash and our net debt to capital ratio was 19, 8%.
Marty: In addition, we are generating strong cash flows with approximately $1 billion of cash flows from operations projected for fiscal 2025.
Marty: As previously reported during the quarter, we extended the maturities of our credit facilities to February 2030, and Upsized, our revolver to $235 billion.
Marty: And we increased our quarterly dividend by 9% to <unk> 25 per share.
Marty: We repurchased $177 million of our common stock, bringing full year repurchases to approximately $200 million.
Marty: We bought 2073 lots for $362 million.
Marty: As Doug mentioned as a result of our strong financial position and healthy cash flows we are increasing our projected share repurchases in fiscal 'twenty five from $500 million to $600 million.
Marty: Turning to guidance our outlook is subject to the usual caveat regarding forward looking information and the assumptions risks and uncertainties inherent to projections.
Marty: Based on our backlog and recent sales activity and the number of homes currently under construction or completed.
Marty: We expect to deliver between 20 803000 homes in the third quarter.
Marty: And we continue to expect to deliver between 11200 11600 homes for the full year.
Marty: Our projected second half delivery cadence is consistent with what it has been over the past several years.
Marty: On average we delivered approximately 58% of full year deliveries in the second half.
Marty: With 26% of the total delivered in the third quarter and 32% in the fourth quarter.
Marty: We are projecting essentially the same percentages this year.
Marty: Yeah.
Marty: The average price of deliveries in the third quarter is expected to be between 965000 and $985000.
Marty: We are maintaining our full year projection of 945000 to $965000 for our average price of deliveries.
Marty: As Doug mentioned today's softer demand environment, we believe it makes the most strategic sense to prioritize price and margin over pace.
Marty: This strategy combined with the gross margin embedded in our backlog.
Marty: It's us confidence in maintaining our full year projected adjusted gross margin of $27 two 5%.
Marty: For the third quarter. We also expect adjusted gross margin to be 20, 725%.
Marty: We expect interest and cost of sales to be approximately one 2% of home sales revenues in the third quarter and also for the full year.
Marty: Third quarter SG&A as a percentage of home sales revenue is expected to be approximately nine 2%.
For the full year, we continue to expect it to be between $9 four and nine 5%.
Marty: Other income income from unconsolidated entities and land sales gross profit in the third quarter is expected to breakeven.
Marty: We continue to project a $110 million for the full year much of which is projected to come from fourth quarter sales of our interest in certain stabilized apartment communities developed by toll brothers apartment living in joint venture with various partners.
Marty: We projected third quarter tax rate to be approximately 26%.
Marty: On a full year rate to be approximately 25, 5%.
Marty: Our community count at quarter end was 421 compared to our guide of $4 15.
Marty: We expect 430 at the end of the third quarter.
Marty: Reaffirmed 440 to 450 communities by the end of the fiscal year.
Marty: Our weighted average share count is expected to be approximately $99 million for the third quarter and 100 million for the full year.
Marty: This assumes we repurchased $400 million of common stock in the second half on top of the $200 million, we bought back so far this year.
Marty: Which would be consistent with the greater operating cash flow, we typically generate in the second half.
Marty: All of our guidance for fiscal 2025 translates to approximately $14 per diluted share.
Marty: This would result in a full year return on beginning return on beginning equity of approximately 18% I would put our year end book value per share and approximately $90.
Marty: Yeah.
Marty: We believe these results will once again reinforces the strength and resiliency of our business model as well as our ability to successfully navigate changing market conditions, while still delivering attractive returns to stockholders.
Douglas Yearly: Now, let me turn it back to Doug.
Douglas Yearly: Thank you Marty.
Douglas Yearly: Yeah.
Douglas Yearly: You are welcome.
Speaker Change: Before I open it up for questions I'd like to thank our toll brothers' employees for their hard work in the first half of 2025 mm.
Speaker Change: I am proud of your commitment to our customers and dedication to our business, which are key drivers to our long term success.
Speaker Change: Now, let's open it up to your questions Jamie we're ready to go.
Speaker Change: Ladies and gentlemen at this time, we'll begin the question and answer session.
Speaker Change: A reminder, the company is planning to end the call at 930, when the market opens.
Speaker Change: Sorry, I Didnt Q&A, we do ask that you. Please limit yourselves to one question and one follow up.
Speaker Change: To ask a question you May press Star and then one you are using a speaker phone. We do ask that you. Please pickup your handset before pressing the keys to ensure the best sound quality.
Speaker Change: So the draw your questions you May press star two.
Speaker Change: And our first question comes from Stephen Kim from Evercore ISI. Please go ahead with your question.
Stephen Kim: Yeah. Thanks, very much guys appreciate all the color as usual.
Stephen Kim: My first question actually a it has a bit of a housekeeping element to it we didnt see your spec data and your homes under complete our completed and under construction.
Stephen Kim: Information. So I was wondering if you could kind of give us an update on where your specs span both completed as well as under construction.
Stephen Kim: And my overarching question with respect to that is you know you you've talked about 11, 5000 closings give or take I'm kind of wondering like how many units do you want to have under construction or completed at any point in time, given a run rate of about 11000 closings and where do we stand relative to that.
Marty: So I'll, let Marty.
Marty: Hey, Steve I'll, let Marty give you the details on the spec count and then I'll be happy to jump in and answer your question.
Marty: Sure Steve we have just over 1000 fully completed spec units right now and we have a number that can.
Marty: Can we get a specific number do you mind Marty 1028.
Speaker Change: We have approximately 20 I just got a.
Marty: Techs in the field, we sold one Martin.
Marty: [laughter] Oh that is the number as of $4 30.
Marty: 2400, or so in progress and we have permits available for another 1000 or two behind those that we have not commenced construction on right. So the 2400 in progress.
Marty: It means that we've issued or go to the field and so.
Marty: And progress could mean the survey crew is is taking out the lot to anticipate a foundation going in and so it goes all the way back to.
Marty: <unk>.
Marty: The company's decision to go with it.
Marty: Could you may not visibly see anything on the on the site yet, but the permits in hand, and we're ready to go so that's a very broad.
Marty: Finishing.
Speaker Change: With respect does that give you what you need.
Marty: Yeah, we'll follow what cleanup.
Marty: Later on but that gets us close I think I think the other aspect that may be along the lines of what you're looking for this is about.
Marty: Highest concentration of work in progress and completed specs that we will have at any particular point in time during the year.
Marty: So.
Marty: You asked about our comfort level.
Marty: We are comfortable with.
Marty: With where we are in the spec business you know, we had gotten it up to 55%.
Marty: A few quarters ago as you heard us say today.
Marty: We are we are slowing the start of new spec. So many of those permits we talked about are sitting at permit without ago issued.
Marty: And I think that is the smart way to run this business in the current environment.
We are very pleased.
Marty: With how well we did in the second quarter in terms of the sale of specs without.
Marty: Larger incentives and one of the reasons, we had a revenue beat in Q2 is because we.
Marty: We call it same quarter sell and sell.
Marty: So it is not a speck we sold in a prior quarter to settle now, but how many cell and settles do we have.
Marty: Intra quarter.
Marty: And we were very pleased in Q2.
Marty: With that activity and that incentive levels that were manageable and so as we move forward we.
Marty: We continue to be very comfortable.
Marty: With Q3 and Q4, our number of specs that we believe will sell and settle and we believe based on current market conditions.
Marty: We have conservatively budgeted incentives those incentives are consistent with what we achieved.
With our spec sales in Q2, and that's why we have comfort in the guide.
Marty: Understanding that we have.
Marty: <unk> completed spec homes that we intended to sell and settle.
Marty: And then beyond that of course some of these homes in progress. Many of these homes in progress would be ready to deliver by the end of October the end of our fiscal year.
Marty: We have projected that some of those will in fact sell over the next five and a half months and subtle but there'll be another bunch of those that while they could.
Marty: Settle by the end of Q4, we are not budgeting for that we are conservatively assuming that they roll into 2026.
Marty: And setup that year, but in terms of the incentive front, which I know is that.
Marty: Question out there we've read it overnight, we're very comfortable with how we budgeted yes, there's more incentive needed to move spec right now in this market than build to order. We are very pleased with build to order margin. It actually is coming in higher than we have budgeted, particularly for the more luxury.
Marty: <unk> the more expensive homes those margins are coming in even higher so while the spec margin is a little bit lower it all blends out to 27 point to 527.5 as we did in this past quarter and we are assuming no improvement in the market over the next five and a half months.
Marty: To deliver the returns and the guidance that we have presented.
Marty: Okay.
Speaker Change: Our next question comes from John Lovallo from UBS. Please go ahead with your question.
John Lovallo: Hey, good morning, guys. Thank you for taking my questions first one is I mean, obviously you did a really nice job managing the business and as you talked about prioritizing price and margin over pace in the quarter.
John Lovallo: Third quarter gross margin outlook of 27 in the quarter implies pretty flat quarter over quarter margin in the fourth quarter. Just curious to know kind of what are the moving pieces impacting the second half gross margin and any thoughts on sort of the sustainability of this into next year.
John Lovallo: Sure. So it's a great question, yes.
John Lovallo: You are right in your math that the fourth quarter.
John Lovallo: Margin, we expect to be about.
John Lovallo: About the same as the third quarter of 2007 to five.
John Lovallo: While there will be some downward pressure because of the spec.
John Lovallo: Cell and settles as I discussed.
John Lovallo: We have some tailwind gross margin.
John Lovallo: From mix.
John Lovallo: There's going to be more luxury delivering in the second half of the year, which is higher margin and theres going to be more out of the Pacific and out of the mid Atlantic region, which both support a higher gross margin.
John Lovallo: So when you blend more spec that will have a bit we believe a bit higher incentive with what I just described.
John Lovallo: And in the mix coming out of the Pacific and the mid Atlantic and more luxury nationwide.
John Lovallo: It all works out to the guidance we've given.
John Lovallo: Yeah.
John Lovallo: Understood and then you guys beat the top end of the delivery guide by about 200 homes.
John Lovallo: What drove the beat was this product mix, maybe a little bit more spec was it regional mix and does it imply that you're incrementally less optimistic on the full year given the maintained outlook.
John Lovallo: Yes.
John Lovallo: I don't think it necessarily.
John Lovallo: Changes are optimism for the whole year, what we did in the second quarter is simply we outperformed by selling and settling more spec homes than we had projected.
John Lovallo: And we still had a gross margin beat.
John Lovallo: And I think that provides some evidence to the conservatism that we have in our guidance.
John Lovallo: Yeah.
Speaker Change: Our next question comes from Mike Dahl from RBC Capital markets. Please go ahead with your question.
John Lovallo: Okay.
Mike Dahl: Good morning, Thanks for all the anthem, taking my questions.
Mike Dahl: Kip.
Speaker Change: Back half a little bit.
Speaker Change: When we look at it.
Speaker Change: Historically see your point about the cadence being consistent.
Speaker Change: The flip side is that the first year that we can see looking back where your current backlog.
Speaker Change: Given actually fully cooperating second half deliveries no longer you need more deliveries in the second half than they are correct.
Speaker Change: Cogs, So I know like dog, Marty you talked about you expect to sell them selling settles completed somebody under progress can you just give us a little more granularity.
Speaker Change: That opportunity like update of the number of homes in.
Speaker Change: In progress or completed a what is.
Speaker Change: We can close what percentage of that 2004 hundred do you think could actually.
Speaker Change: Settle by year end, and then just given the lack of visibility on.
Speaker Change: Margins for homes that you haven't sold a little more detail on.
Speaker Change: Snack margin progressed through the quarter would help I think.
Alright, Mike.
Speaker Change: We have roughly 6400 units left to deliver this year to hit the 11400 midpoint.
Speaker Change: Roughly 4500 of them should deliver from our backlog remember our backlog is 6050 or so homes. So those homes are sold we know the revenue build costs are contracted so we have limited risk on their cost growing or shrinking and we think we have adequate builders reserves in those cost estimates.
Speaker Change: So, let's take those 4500 off the table.
Speaker Change: Have roughly 1900 homes that will need to come from more spec inventory that hasn't been sold yet we told you a thousand actually 1028 of them are completed.
Speaker Change: So theres no build cost risk there the others are all under construction in fact more than the 900, we would need to sell and settle our under construction. So there's not much cost risk there because they are under contract for construction. So it's really the selling price of those 1900, where there is some potential risk.
Speaker Change: And we believe we've accounted for that in this market based on recent comparable sales a lot of which I just mentioned in the second quarter is still allowed us to outperform our guidance for the second quarter, we sold and settled 250 to 300 more.
Speaker Change: Specs in the second quarter than we thought when we entered the quarter and we'd be gross margins still so.
Speaker Change: So I hope that helps give some comfort and understanding of what we foresee in the next six months and those 900, we waived the thousand completed and then we need 900 more that are under construction.
Speaker Change: We have significantly more than the 900 that could deliver by October 31.
Speaker Change: So we are not being aggressive and assuming that Oh boy, we need to sell and settle everything we're building to hit that number there will be plenty that will be setting up 2026 that do not sell and settled by the end of this fiscal year. It's also safe to assume that as we manage our spec production.
Speaker Change: We have a green light for specs is probably where we're doing best.
Speaker Change: Okay. That's perfect. Yes very helpful. Thank you my follow up question, maybe just.
Speaker Change: Well on similar lines, you talked about the stronger margins on build to order a luxury presumably a lot of that in your backlog.
Speaker Change: So you've talked about your backlog gross margin can you give us a sense of where your current backlog gross margins.
Speaker Change: I think it's inherent in the guidance we've given you.
Speaker Change: I mean it.
Speaker Change: The build to order business runs.
Speaker Change: Several hundred basis points or below or above the midpoint in the spec business runs several hundred below leg.
Speaker Change: Lately that that range has widened a little bit on both ends but it still comes out in the middle.
Speaker Change: And that's why we like the business.
Speaker Change: We're doing a really good job of.
Speaker Change: Balancing our speck business with our build to order business and remember.
Speaker Change: We don't hold back off until the end, where the client has no choice.
Speaker Change: We sandal sell a lot of our spec earlier with.
Speaker Change: With a buyer can still go to our design studios pick all the finishes that allow them to have a home that really fits their lifestyle and that design studio is highly accretive in margin to the company's margin. So when we're able to spell his seles Burke a bit earlier, even if it's if it's incentives.
Speaker Change: Just a little more there.
Speaker Change: There can be some residual margin left after they get to that design studio.
Our next question comes from Trevor Allinson from Wolfe Research. Please go ahead with your question.
Trevor Allinson: Good morning, Thank you for taking my questions.
Speaker Change: <unk> talked about demand slowing throughout the quarter I think that's not very surprising given what we've heard from other builders in the stock market volatility in April.
Speaker Change: Question would be then as we got into May here stock market, obviously got a lot better he had a pause on tariffs did you see demand get better as we went into may.
Speaker Change: And if so could you put any numbers around that perhaps either relative to April relative to <unk>. However, you want to frame it.
Speaker Change: So it's very interesting.
Speaker Change: February was our first worst month.
Speaker Change: We sold one seven homes.
Speaker Change: In the month of.
Speaker Change: February March and April were pretty consistent.
Speaker Change: At two four.
Speaker Change: And 2.3 sales in those months and May is trending more like.
Speaker Change: March and April.
Speaker Change: Now me seasonally as lower sales historically than March and April but.
Speaker Change: June and July the next two months of this third quarter have better sales historically that may so we seem to be trending right now into may consistent what we saw in March and April which were better than February.
Speaker Change:
Speaker Change: No.
Speaker Change: I think we and all the other builders have explained it well there and we all know what the market is softer than we had all anticipated back in January.
Speaker Change: There's a lot of good.
Speaker Change: And understandable reasons for that.
Speaker Change: With consumer confidence being down with macroeconomic vial, but volatility with the stock market.
Speaker Change: Moving around quite a bit.
Speaker Change: You know there are buyers on the sidelines.
Speaker Change: One of the reasons, we are favoring pace over price is because we believe this market is fairly inelastic and to throw more incentive at home sales.
Speaker Change: It's going to hurt your margin a lot more of that is going to increase sales because the buyer is not responding over 510 15 $20000 of more incentive.
Speaker Change: Many of them just happen to be on the sidelines, but you know I am very pleased with the company's performance through the second quarter and into the beginning of the third quarter, considering the macro environment out there and I think it has it was what we said earlier that over 70% of our business is move up and empty nester.
Speaker Change: Our buyer is more affluent we have a quarter of our buyers paying all cash those get a mortgage or a 70 LTV.
Speaker Change: Theyre moving up are there moving down they are moving on with their lives they have equity in their homes and so I think we're in a really good.
Speaker Change: Niche in the market notwithstanding the fact that the market is a bit softer.
Speaker Change: But that's a long answer to your cadence of the quarter, but we were surprised that February was worse and we are may is where we thought it would be which is consistent with what we've seen in March and April.
Speaker Change: June should be a bit better July should be a bit better.
Speaker Change: We are not anticipating an improvement in this market.
Speaker Change: Any of the guidance, we're giving.
Speaker Change: And as I said, I think we have adequately and conservatively.
Speaker Change: Budgeted the incentives necessary for the cell and settle all spec inventory we have.
Speaker Change: Yes.
Speaker Change: And the second question I guess, it would be more of a follow up on that and kind of double clicking on.
Speaker Change: Some of the comments you just made there because it sounds like your April trends, where we're pretty different from what we've heard from some other bill there's a lot of other builders have made it has suggested that April was much softer. So you you think that is just purely for you guys. Just a different profile for your consumer as you were just talking about and then if that.
Speaker Change: The case I mean, you mentioned earlier that you guys build across a pretty wide range.
Speaker Change: Points are you seeing big differences here more recently in demand.
Speaker Change: Relative to what you were seeing earlier in the year across those price points.
Speaker Change: So I apologize if.
Speaker Change: I was misunderstood.
Speaker Change: Overall the results are still softer.
Speaker Change: Our expectations I was comparing you asked for a cadence and I was comparing March and April to February.
Speaker Change: We are not happy with two point forward two three sales per month in the March and the months of March and April.
Speaker Change: But that's the market and so what other others are describing I think we would be consistent with that.
Speaker Change: But I just wanted to explain that we didn't see.
Speaker Change: February being best March being next first and then April being the worst because of the cadence what was going on with tariff conversations and macro issues.
Speaker Change: We sort of flattened out in March and we stayed where we were.
Speaker Change: And so I just want you to understand that that I wanted to put that perspective around it. It is a soft housing market. We all know it and we're doing pretty well in that market and I think we're managing the business extraordinarily well.
Speaker Change: Our next question comes from Sam Reed from Wells Fargo. Please go ahead with your question.
Sam Reed: Awesome. Thanks, so much I wanted to drill down a bit on SG&A I just looking at the implied Q4 guide the math would suggest some fairly nice leverage I get anywhere from 30 to 40 bps year over year, which is really great kind of on the back of a few deleverage quarters.
Speaker Change: So just talk to kind of what's driving that leverage.
Speaker Change: Just any nuances with regard to you know kind of your community openings marketing spend would just love some more perspective on kind of how youre going to exit the year on SG&A.
Speaker Change: Yeah. So.
Speaker Change: The biggest issue Sam is that we're going to have a lot more revenue, we're going to have 235 more than $235 million more revenue than last year, and that's really what's driving a lot of the the leverage that's in Q4 and Q4 I'm talking about Q4.
We are very focused on SG&A, we're growing community count pretty significantly, particularly in that fourth quarter.
Speaker Change: And so there are pressures, but we've done a really nice job of managing costs, we're not immune from some of the inflationary.
Speaker Change: Pressures I'll say, particularly on the healthcare front, it seems like something thats grown a little bit more than we'd like.
Speaker Change: Well, we're managing it very actively and we have the flexibility to continue to manage it actively as the market evolves.
Speaker Change: In addition to leverage.
Sam Reed: Sam are our variable sales costs.
Sam Reed: Ponant of SG&A came down a little bit was a little bit below what we expected in this quarter and this past quarter, which which was a little bit of a tailwind for us.
Sam Reed: Yes, absolutely no that helps and then maybe just switching gears here I realize you guys are not offering up a 26 outlook today.
Sam Reed: Probably not going in for another.
Sam Reed: Call it two quarters.
Sam Reed: Other than to say that sounded like community count is going to be up year over year in 2026.
Sam Reed: Wanted to maybe double click a little bit on what deliveries in 2026 could look like.
Sam Reed: And the basis for that is you know what the backlog is a little smaller.
Sam Reed: This year than it was last year, and just would love to kind of get your sense as to sort of kind of what a good base case assumption for 2026 deliveries could be in the context of that backlog that.
Sam Reed: I appreciate you asking and trying to get us to give some guide on 'twenty six we're not prepared to do that right now that is usually the highlight of the December call.
Sam Reed: But I will with that I will say that.
Sam Reed: The average price of homes in 26 will be higher that's obvious from the last couple of quarters of sales and where that average price is.
Sam Reed: We are focused that no we need a strong backlog heading into 2026.
Sam Reed: We will have a continuing spec strategy that we know is important.
Sam Reed: As we head into 2026, we will continue to be mindful of market conditions on a very local level as to where we start spec and where we are more cautious, but we are well aware.
Sam Reed: And embrace the importance of our spec strategy.
Sam Reed: And we will have as I said in my prepared comments.
Sam Reed: Around 10% community count growth.
Sam Reed: In 2026, so I am not giving you any numbers, but I will give you a bit of that background and flavor.
Sam Reed: When we opened communities, we often get kind of a boost to sales is there some pent up demand for those communities and we can.
Sam Reed:
Sam Reed: Moderator that if we want or let it run if we want so that's part of the strategy, we would deploy it too.
Our next question comes from Alan Ratner from Zelman and Associates. Please go ahead with your question.
Alan Ratner: Hey, guys good morning.
Speaker Change: Nice quarter and thanks for all the detail.
Alan Ratner: Okay.
Alan Ratner: So I'd love I appreciate the monthly cadence data and I was hoping just to get a little bit more qualitative kind of commentary on.
Alan Ratner: How do things progress for you with the moving pieces in your business. Obviously your buyer is probably more.
Alan Ratner: Tied to the stock market volatility and other builders in April was obviously, a very very challenging month for the stock market. The last few weeks.
Alan Ratner: The markets have rebounded and I'm just curious it doesn't sound like your order data is necessarily picked up meaningfully but have you seen any green shoots either in traffic or just kind of the commentary from your salespeople that stabilization in the stock market is having any.
Alan Ratner: Positive leading indicators on your on your buyer pool.
Speaker Change: Yes Alan.
Speaker Change: It's modest it's too early to tell there is no question.
Speaker Change: Confidence consumer confidence.
Speaker Change: I think it was the number one leading indicator at least for tolls business.
Speaker Change: More affluent and.
Speaker Change: Do rates matter of course, they do when we celebrate.
Speaker Change: A 5% and seven eighths.
Speaker Change: 30 year no point mortgage of course, we will.
Speaker Change: But you know a little tick.
Speaker Change: And mortgage rate doesn't affect our client as much for the reasons, we've talked about 25% of all cash those that get a mortgage are at 70% we know.
Speaker Change: A good part of the 30% of first time buyers we sell to.
Speaker Change: Getting some help from mom and dad with generational wealth transfer and so that's going to take a mortgage payment down because they're probably getting able to put a bigger down payment on the house, thanks to mom and dad.
Speaker Change: So while interest rates are important you are right that the stock market overall confidence.
Speaker Change: Some positive news out of DC about resolving some of the tariff conflict.
Speaker Change: All of that matters and it can matter in a big way and we have significant under supply of homes. In this country. We have terrific demographics that are a tailwind for future growth.
Speaker Change: And we've all seen it I've been doing this 35 years when this turns look.
Speaker Change: Exactly 30, thank you Michael.
Speaker Change: Apparently today.
Speaker Change: I know it was my 60 is call. It I didn't know this is my 30 <unk> anniversary today.
Speaker Change: But we've all seen it when this market turns.
Speaker Change: With those <unk> and when so many people on the sidelines just waiting to feel better. So they can move on with their lives look out because it is going to come.
Speaker Change: But I can't tell you in the last 234 weeks as the market the stock market has stabilized that we've seen anything.
Speaker Change: Definitive there's just some modest you know conversations and color that we get out of sales.
Speaker Change: The traffic's up the quality of Traffics up we've had a few openings lately of new communities with significant intra.
Speaker Change: Interest at the opening we've had a couple of where we've gone back to.
Speaker Change: You know the best and final offer.
Speaker Change: Where you know we let people bid up to five houses that were offered because there's so much interest. That's the exception don't I don't need that to be a headline right now but.
Speaker Change: We will keep an eye on it.
Speaker Change: We're not heading into the spring season, we're heading into the summer. So it's a little bit different time. It is a good time to sell finished spec right because buyers want to get into their new home by the school year.
Speaker Change: To not disrupt the kids.
Speaker Change: And so you need to buy a house in the next couple of months to get that house to close by the end of August and so and we have time to that appropriately.
Speaker Change: We know that you want to brings finished back into the market at the right time when buyers want it which is that generally the summer months. So we'll have to see.
Speaker Change: Again, another long answer that no I don't see anything definitive yet.
Speaker Change: Yet but.
Speaker Change: But I wouldn't be surprised if it comes if theres more stabilization in the macro market.
Speaker Change: Got it I appreciate the commentary there.
Speaker Change: The question Theres, obviously, a lot of headlines associated with immigration and what's going on there.
Speaker Change: Was hoping you could just refresh.
Speaker Change: My memory, what what percentage of your buyers are foreign nationals, I guess, specifically kind of <unk> visa holders and have you seen any.
Speaker Change: Changes in demand among that cohort of buyers here to date.
Speaker Change: It's less than 5%.
Speaker Change: For the first part of your question and.
Speaker Change: No we haven't seen.
Speaker Change: Any any.
Speaker Change: Any change over the since.
Speaker Change: Since the new year.
Speaker Change: The Chinese buyer in particular.
Speaker Change: And again that may be a Chinese national maybe Chinese American, but that fire in particular is still very strong for us in California.
Speaker Change: Your next question comes from Alex Barron from housing Research Center. Please go ahead with your question.
Alex Barron: Yes. Thank you.
Alex Barron: I wanted to focus in on your comments about.
Alex Barron: Having.
Alex Barron: More than enough specs to hit your numbers in the fourth quarter.
Alex Barron: It was kind of going back.
Alex Barron: Several years now.
Alex Barron: It looks like you're delivering have exceeded your orders by quite a bit as their backlog has been.
Alex Barron: Coming down from a peak of 11700 or so of the 5000 now.
Alex Barron: So can you explain that dynamic I mean, how many total homes I guess are sort of not in the backlog that are under construction I guess facts.
Alex Barron: So help us kind of understand that dynamic a little bit better.
Alex Barron: Okay.
Speaker Change: Sure Alex So I think over that period of time, you've seen us move from a 90% build to order book business to a 50%, 55% spec business, where we sit currently so the backlog.
Alex Barron: Coming down is not.
Speaker Change: Unplanned.
Speaker Change: And we open the call mentioning that we had 1028 completed specs that could be sold and settled in the next.
Speaker Change:
Speaker Change: Six months, we have another what was the number 2400 specs at various stages of construction.
Speaker Change: And so we will have more than enough.
Speaker Change: Completed specs by the end of the year to deliver the roughly 900 additional selling settle specs on top of the 1000 settle selling several specs to hit our delivery guidance factoring in roughly 4500 homes coming out of backlog as well.
Speaker Change: Got it and then find those 2400, we have another 2000.
Speaker Change: <unk>, putting permits pulled homes that we will begin production of a certain percentage of depending on how the market evolves.
Speaker Change: The bucket that we have slowed yes, and we're making very local.
Speaker Change: Decisions on based on market conditions.
Speaker Change: Got it and so when would you expect I guess your.
Speaker Change: Your backlog to sort of hit bottom in that sense and start trending back up is that kind of towards the end of this year.
Speaker Change: Well with the slowing of spec starts.
Speaker Change: Hi.
Speaker Change: I don't know if it's the end of the year exactly but yes, there will be a point, where you will you should see that go up again, it's all it's market conditions driven right, but we have.
Speaker Change: Recently.
Speaker Change: Seen a bit of a move.
Speaker Change: Back towards a desire for build to order.
Speaker Change: Versus faster delivery of a spec home and I think that's for a couple of reasons.
Speaker Change: When you have a bit of a softer market and higher rates. There are buyers that say you know this is my dream home I want to design it to exactly my case I want to be able to customize it and I'm willing to wait it may take me a little longer to sell my home.
Speaker Change: Maybe the rates come down when I have to lock in 60 days before that home is delivered.
Speaker Change: And I sort of like the idea and the comfort of this move occurring in 12 months to my Dream home versus 234 months to spec inventory and we are we are feeling a bit of that now, which we are encouraged by frankly because.
Speaker Change: Our our special sauce is choice and we've talked about the higher margin and build the order it's not a dramatic change, but we are beginning to see.
Speaker Change: Out in the field a bit of a bit of a leaning.
Speaker Change: Our preference towards the build to order versus the spec.
Buck Horne: And our next question comes from Buck Horne from Raymond James. Please go ahead with your question.
Buck Horne: Hey, Thanks, guys. Good morning, I wanted to add a little bit about that.
Buck Horne: Hey, I wanted to ask a little bit about the land spend in the quarter. It would seem like it was one of the higher quarterly amounts you guys have.
Buck Horne: Spent in recent memory added some additional loss was there any particular.
Buck Horne: Land deal or anything noticeable that kind of drove the the surge and you know should we have any other takeaways in terms of.
Buck Horne: What does that mean about your confidence about the land market yes.
Buck Horne: Yes, so our land spend in the second quarter was $362 million compared to $360 million in the first quarter.
Buck Horne: So we have spent $763 million for the full six months.
Buck Horne: Do you think it may ratchet up in the back end of the year, but a lot of that depends on the timing of deals is the close there was nothing in particular in the second quarter that drove the number to be consistent with the first quarter, Yeah I think so.
Buck Horne: For us to move forward and close on the ground in this environment means it's still pencils, we may have been able to renegotiate price or take down terms.
Buck Horne: Where land banking more than we ever have.
Buck Horne: New deals coming in I think we're at 40% guidance is that sort of number.
Buck Horne: All of the news the new deals the new deals coming in or being land bank.
Buck Horne: But our comments about due to softer market conditions were being more cautious and we expect land spend to probably come down in 2006.
Buck Horne: I wouldn't read anything into the last few quarters or the next few quarters in terms of land spend because those deals are baked and they still work and so we're moving forward maybe on the same terms or maybe on modified terms.
Buck Horne: But it's really the next deal contracted four which may add two or three years of entitlements ahead of it or it may have.
Buck Horne: Closing in six months it all depends on what the land deal is but those are the ones that.
Buck Horne: Over time at least at the moment.
Buck Horne: The land spend may come down a bit but at this market move improves.
Buck Horne: Then.
Buck Horne: That may also change and we may find ourselves by more ground, but we're very happy to have.
Buck Horne: The 80000, plus or minus lots that we own and control, we're very proud of moving.
Buck Horne: More and more lots to the option category and that gives us great flexibility.
Buck Horne: And conservatism when it comes to the next deal because our land bank is in such great shape.
Speaker Change: Got it got it very helpful clarification. Thank you and just with a little bit of timing can you just walk us through geographically how the markets were shaping up versus your expectations any any standout surprises to you in terms of how things progressed during the quarter, either with economic sensitivity either strength or.
Buck Horne: The downside or upside.
Buck Horne: Sure so the better markets.
Buck Horne: We're in New Jersey, Pennsylvania, and New York.
Buck Horne: It did well.
Buck Horne: Metro Charlotte Atlanta, So that's just the eastern seaboard.
Buck Horne: Did well.
Buck Horne: West Las Vegas, Denver, Boise, Idaho did well in all of California did well.
Buck Horne: Softer spots specific northwest for us, that's greater Seattle, and Portland, Oregon.
Buck Horne: Most of Florida parts of Texas and Phoenix.
Buck Horne: Continue to be on the softer side of our business.
Buck Horne: And ladies and gentlemen, with that we will be concluding today's question and answer session at.
Buck Horne: At this point I'd like to turn the floor back over to management for any closing remarks.
Buck Horne: Jamie Thank you very much you've been terrific.
Buck Horne: Thanks, everybody for your interest and support we are always here to answer any follow up questions. You may have.
Buck Horne: Have a wonderful memorial day weekend.
Buck Horne: And summer and we'll see you soon and thanks, so much take care.
Speaker Change: And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending today's presentation.
Speaker Change: May now disconnect your lines.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Good morning, everyone and welcome to the toll brothers second quarter fiscal year 2025 conference call.
Speaker Change: All participants will be in a listen only mode. If you need assistance. Please signal conference specialist by pressing the star key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May press Star and then one using a telephone keypad.
John Lovallo: John Your question. Please press star two.
Speaker Change: The company is planning to end the call at 930, when the market opens.
Speaker Change: During the Q&A, please limit yourself to one question and one follow up please.
Speaker Change: Please also note today's event is being recorded.
Douglas Yearly: At this time I would like to turn the floor over to Douglas yearly CEO. Please go ahead.
Speaker Change: Thank you Jamie good morning.
Douglas Yearly: Welcome and thank you all for joining US with me today are Marty Connor Chief Financial Officer, Rob Powerhouse, President and Chief Operating Officer, Wendy Marlett, Chief Marketing Officer, and Gregg Ziegler Senior VP Treasurer and head of Investor Relations.
Douglas Yearly: As usual I caution you that many statements on this call are forward looking based on assumptions about the economy world events housing and financial markets interest rates, the availability of labor and materials inflation and many other factors beyond our control that could significantly affect future results.
Speaker Change: Please read our statement on forward looking information in our earnings release of last night and on our website to better understand the risks associated with our forward looking statements.
Speaker Change: I am pleased with our performance in the second quarter.
Speaker Change: In what proved to be a challenging environment, we met or exceeded our guidance across all key metrics.
Speaker Change: We delivered 2899 homes at an average price of approximately $934000 generating record second quarter home sales revenue of $2 $71 billion or $236 million better than the midpoint of our guidance.
Speaker Change: We posted an adjusted gross margin of 27, 5%.
Speaker Change: In an SG&A margin of nine, 5%, a 25% and 80 basis points better than guidance respectively.
Speaker Change: And we earned $352 $4 million or $3 50.
Speaker Change: Per diluted share.
Speaker Change: Adjusting for the $175 million pre tax land sale gain we recorded last year, our second quarter earnings per share were a record.
Speaker Change: We believe these results highlight the strength of our broadly diversified luxury product offerings, our balanced portfolio of build to order and spec homes.
Speaker Change: And our strategy of prioritizing sales pace and margin in the current environment as we seek to maximize returns.
Speaker Change: They also reflect the financial strength of our customers.
Speaker Change: Our results and the strength of our backlog also provide us the confidence to reaffirm all of our guidance for fiscal 2025.
Speaker Change: Including home sales revenue of $10 $9 billion at the midpoint and adjusted gross margin of 20, 725% and earnings of approximately $14 per diluted share.
Speaker Change: Turning to market conditions in the second quarter, we signed 2650 net agreements for $2 $6 billion down approximately 13% in units and 11% in dollars.
Speaker Change: Impaired to last year's strong second quarter.
Speaker Change: We experienced softer demand in the second quarter due to a decline in consumer confidence driven.
Speaker Change: Driven by increased economic uncertainty.
Speaker Change: These conditions have continued into our third quarter.
Speaker Change: In this environment, we believe prioritizing price and margin over pace makes the most strategic sense.
Speaker Change: We are confident that our balanced approach will allow us to continue successfully navigating this market.
Speaker Change: Our average sales price in the quarter was approximately $983000.
Speaker Change: <unk> to $1 million in our first quarter and $967000 in the second quarter of fiscal 2024.
Speaker Change: Given the softer demand environment, we modestly increased incentives in the quarter overall incentives were approximately 7% of the average sales price up from our recent average of 5% to 6%.
Speaker Change: As we discussed last quarter, we have been reducing our spec starts to match local market conditions are.
Speaker Change: Our spec strategy is calibrated to effectively balance the need to have quick move in homes available to meet buyer demand while protecting margins.
Speaker Change: Over the past decade, we have worked hard to build a nationwide platform with operations in over 60 markets in 24 States. We now serve all buyer groups with the broadest home offerings in the industry and prices that range from the 300000 to over $5 million.
Speaker Change: We have entered new markets and expanded our offerings, while enhancing all of that sets us apart as America's luxury homebuilder.
Speaker Change: Exceptional brand, our affluent customer base prestigious locations distinctive architecture, unrivaled choice and an extraordinary customer experience.
Speaker Change: We've executed this growth strategy, while de risking our balance sheet, improving capital efficiency and returning capital to stockholders.
Speaker Change: Our performance in the second quarter and over the past many years has demonstrated the competitive advantages of our business and brand and driving high returns as well as our ability to navigate through challenging markets.
Speaker Change: And while the near term outlook for the housing market remains cloudy due to the well known affordability pressures and the volatile macro environment. We continue to believe the long term outlook for new home for the new home market remains positive, particularly for our luxury niche.
Speaker Change: With many entry level buyers struggling with affordability challenges.
Speaker Change: We are pleased to be serving an affluent consumer.
Speaker Change: Over 70% of our business serves the move up empty nester segments.
Speaker Change: These buyers are wealthier a greater financial flexibility and most have equity in their existing homes.
Speaker Change: The remaining 25% to 30% of our business serves the more affluent older first time buyer.
Speaker Change: The financial strength of our customer base as highlighted by our industry low cancellation rate high percentage of all cash buyers and low ltvs for those who take a mortgage.
Speaker Change: Consistent with the past several quarters approximately 24%.
Speaker Change: Of our buyers paid all cash in the second quarter.
Speaker Change: From our long term average of approximately 20%.
Speaker Change: The ltvs of buyers, who took a mortgage in the quarter was approximately 70%.
Speaker Change: And our contract cancellation rate was two 8% of.
Speaker Change: Beginning backlog.
Speaker Change: In addition, the average spend on design studio selections structural options and lot premiums was approximately $200000 per home in Q2.
Speaker Change: <unk> with our first quarter.
Speaker Change: These upgrades benefit our margins as they tend to be highly accretive.
Speaker Change: We continue to expect community count growth to help drive results in fiscal 2025 and beyond.
Speaker Change: We remain on target to reach our year end guidance of approximately $440 to 450 communities.
Speaker Change: Which would represent an 8% to 10% increase versus fiscal year end 2024, we.
Speaker Change: We project similar community count growth in fiscal 2026.
Speaker Change: We also continue to see modest improvements in our construction cycle times as we focus on increasing production efficiency.
Speaker Change: We have not yet seen any impact from potential tariffs on building cost or product availability.
Speaker Change: While it is difficult to predict where tariffs will land and the precise impact to our business. We do not believe we will see any significant impact in fiscal 2025.
Speaker Change: Turning to land at our second quarter, and we controlled approximately 78600 lots, 58% of which were options.
Speaker Change: Over the past years excuse me over the past year, we have increased our percentage of option lots from 48% to 58% of our total lot count.
Speaker Change: Consistent with our focus on structuring land deals in more capital efficient ways in order to enhance returns.
Speaker Change: Our land position allows us.
Speaker Change: To continue to be highly selective and disciplined as we approach new opportunities in today's environment, we have tightened our underwriting standards and are reducing land spend on new deals, which we expect to primarily impact fiscal 2026 land spend.
Speaker Change: At quarter end, we held approximately $686 million of cash and cash equivalents and our net debt to capital ratio was 19, 8%.
Speaker Change: We continue to generate strong operating cash flows is provides us plenty of opportunity to both grow our business and return capital to stockholders.
Speaker Change: During the quarter, we repurchased $177 million of our common stock.
Speaker Change: Given our strong financial position healthy projected cash flow and our focus on returning capital to stockholders, we are increasing our projected share repurchases in fiscal 2025% from $500 million to $600 million.
Marty: With that I will turn it over to Marty.
Marty: Doug.
Doug: Congrats on today being the 35th anniversary of your first day at <unk> and your 68 conference call.
Speaker Change: We had a strong second quarter, beating our guidance for deliveries homebuilding revenue adjusted gross margin SG&A and earnings.
Doug: In the quarter, we delivered 2899 homes and generated home sales revenues of $2 $71 billion.
Doug: Up nearly 10% units and two 3% compared to last year.
Doug: Were second quarter records at.
Doug: At the midpoint, we delivered nearly 300 more homes in our guidance over $236 million of home sales revenue.
Doug: The average price of homes delivered in the quarter was approximately $934000 a bit below the low end of our guidance as we delivered more homes in our mountain and mid Atlantic regions than anticipated.
Speaker Change: We signed 2600 50 net agreements for $2 6 billion in the quarter down.
Speaker Change: Down 13% in units and 11% in dollars compared to the second quarter of fiscal year 2024.
Speaker Change: Average price of contracts signed in the quarter was approximately $983000 up one 6% compared to last year.
Speaker Change: And second quarter, and our backlog still get stood at $6 $84 billion, and 6063 homes down 7% in dollars and 15% units compared to a year ago.
Speaker Change: The average price of the homes in our backlog was $1 million $130000 a company record.
Speaker Change: Our second quarter adjusted gross margin was 27, 5%, which was 25 basis points better than guidance.
Speaker Change: Our Q2 gross margin exceeding exceeded guidance, primarily due to positive mix strong cost control and increased leverage from higher than projected revenues.
Speaker Change: Write offs in our home sales gross margin totaled $9 $8 million in the quarter as compared to $28 4 million in the second quarter of 2024.
Speaker Change: SG&A as a percentage of home sales revenue was nine 5% in the second quarter, and 80 basis points better than guidance.
Speaker Change: Again, reflecting our focus on cost controls and leverage from higher than expected home sales revenue.
Speaker Change: Second quarter, JV land sales and other income was $29 million versus our breakeven guidance approximately $15 million of this gain was attributable to the sale of a stabilized asset in one of our apartment living joint ventures with the remainder primarily attributable to interest income and income.
Speaker Change: From our mortgage title and city living operations.
Speaker Change: Our tax rate in the second quarter was approximately 26, 2%.
Speaker Change: Our balance sheet is very healthy at second quarter end, we had $2 $8 billion of liquidity, including approximately $686 million of cash and our net debt to capital ratio was 19, 8%.
Speaker Change: In addition, we are generating strong cash flows with approximately $1 billion of cash flows from operations projected for fiscal 2025.
Speaker Change: And as previously reported during the quarter, we extended the maturities of our credit facilities to February 2030, and Upsized, our revolver to $235 billion.
Speaker Change: And we increased our quarterly dividend by 9% to <unk> 25 per share.
Speaker Change: We repurchased $177 million of our common stock, bringing full year repurchases to approximately $200 million and we bought 2073 lots for $362 million.
Douglas Yearly: As Doug mentioned as a result of our strong financial position and healthy cash flows we are increasing our projected share repurchases in fiscal 'twenty five from $500 million to $600 million.
Douglas Yearly: Turning to guidance our outlook is subject to the usual caveat regarding forward looking information and the assumptions risks and uncertainties inherent to projections.
Douglas Yearly: Based on our backlog recent sales activity and the number of homes currently under construction or completed we expect to deliver between 20 803000 homes in the third quarter.
Speaker Change: And we continue to expect to deliver between 11000 211600 homes for the full year.
Speaker Change: Our projected set enhanced delivery cadence is consistent with what it has been over the past several years.
Speaker Change: On average we delivered approximately 58% of full year deliveries in the second half.
Speaker Change: With 26% of the total delivered in the third quarter and 32% in the fourth quarter.
Speaker Change: We are projecting essentially the same percentages this year.
Speaker Change: The average price of deliveries in the third quarter is expected to be between $965000.
Speaker Change: $985000.
Speaker Change: We are maintaining our full year projection of 945000 to $965000 for our average price of deliveries.
Speaker Change: As Doug mentioned today's softer demand environment, we believe it makes the most strategic sense to prioritize price and margin over pace.
Speaker Change: This strategy combined with the gross margin embedded in our backlog.
Speaker Change: Gives us confidence in maintaining our full year projected adjusted gross margin of $27 two 5%.
Speaker Change: For the third quarter, we also expect adjusted gross margin to be $27 two 5%.
Speaker Change: We expect interest and cost of sales to be approximately one 2% of home sales revenues in the third quarter and also for the full year.
Speaker Change: Third quarter SG&A as a percentage of home sales revenue is expected to be approximately nine 2% for.
Speaker Change: For the full year, we continue to expect it to be between $9 four and nine 5%.
Speaker Change: Other income income from unconsolidated entities and land sales gross profit in the third quarter is expected to breakeven.
Speaker Change: We continue to project a $110 million for the full year much of which is projected to come from fourth quarter sales of our interest in certain stabilized apartment communities developed by toll brothers apartment living in joint venture with various partners.
Speaker Change: We projected third quarter tax rate to be approximately 26% and the full year rate to be approximately 25, 5%.
Speaker Change: Our community count at quarter end was 421 compared to our guide of $4 15.
Speaker Change: We expect 430 at the end of the third quarter and reaffirmed 440 to 450 communities by the end of the fiscal year.
Speaker Change: Our weighted average share count is expected to be approximately $99 million for the third quarter and $100 million for the full year.
Speaker Change: This assumes we repurchased $400 million of common stock in the second half on top of the $200 million, we bought back so far this year.
Speaker Change: Which would be consistent with the greater operating cash flow, we typically generate in the second half.
Speaker Change: All of our guidance for fiscal 2025 translates to approximately $14 per diluted share.
Speaker Change: This would result in a full year return at the beginning of a return on beginning equity of approximately 18% and we'd put our year end book value per share and approximately $90.
Speaker Change: We believe these results will once again reinforces the strength and resiliency of our business model as well as our ability to successfully navigate changing market conditions, while still delivering attractive returns to stockholders.
Doug: Now, let me turn it back to Doug.
Douglas Yearly: Thank you Marty.
Douglas Yearly: You are welcome.
Speaker Change: Before I open it up for questions I'd like to thank our toll brothers' employees for their hard work in the first half of 2025 I.
Douglas Yearly: I am proud of your commitment to our customers and dedication to our business, which are key drivers to our long term success.
Speaker Change: Now, let's open it up to your questions Jamie we're ready to go.
Douglas Yearly: Ladies and gentlemen at this time well begin the question and answer session.
Douglas Yearly: As a reminder, the company is planning to end the call at 930, when the market opens.
Douglas Yearly: During the Q&A, we do ask that you. Please limit yourselves to one question and one follow up.
Douglas Yearly: SaaS. The question you May Press Star and then one you are using a speaker phone. We do ask that you. Please pickup your handset before pressing the keys to ensure the best sound quality.
Douglas Yearly: To withdraw your questions you May press star two.
Douglas Yearly: And our first question comes from Stephen Kim from Evercore ISI. Please go ahead with your question.
Stephen Kim: Yes, thanks, very much guys I appreciate all the color as usual.
Douglas Yearly: My first question actually.
Douglas Yearly: A bit of a housekeeping element to it.
Speaker Change: Didn't see your spec data and your homes under complete our completed and under construction.
Speaker Change: Information. So I was wondering if you could kind of give us an update on where your specs span both completed as well as <unk>.
Douglas Yearly: Under construction.
Douglas Yearly: And my overarching question with respect to that is you've talked about 11, 5000 closings give or take I'm kind of wondering like how many units do you want to have under construction are completed at any point in time, given a run rate of about 11000 closings and where do we stand relative to that.
Marty: So I'll, let Marty.
Speaker Change: Hey, Steve I'll, let Marty give you the details on the spec count and then I'll be happy to jump in and answer your question.
Speaker Change: Sure Steve we have just over 1000 fully completed spec units right now and we have a number of unknowns.
Speaker Change: Can we get a specific number do you mind Marty 1028.
Speaker Change: We have approximately 2008 I just got techs in the field, we sold one Marty.
Speaker Change: Yeah.
Speaker Change: That is the number as of $4 30.
Speaker Change: 2400, or so in progress and we have.
Speaker Change: Permits available for another 1000 or two behind those that we have not commenced construction on alright, So the 24 100 and progress.
Speaker Change: It means that we have issued a go to the field and so in.
Speaker Change: In progress could mean the survey crew is taking out the lot to anticipate a foundation going in so it goes all the way back.
Speaker Change: <unk>.
Speaker Change: The Companys decision to go.
Speaker Change: But it could you may not visibly see anything on the on the site yet, but the permits in hand, and we're ready to go so that's a very broad.
Speaker Change: Definition.
Speaker Change: With respect does that give you what you need.
Speaker Change: Yeah, we'll follow what cleanup.
Speaker Change: Later on but that gets us close.
Speaker Change: I think the other aspect that may be along the lines of what Youre looking forward. This is about.
Speaker Change: The highest concentration of work in progress and completed specs that we will have at any particular point in time during the year.
Speaker Change: Yeah.
Speaker Change: So.
Speaker Change: You asked about our comfort level.
Speaker Change: <unk>.
Speaker Change: We are comfortable.
Speaker Change: With where we are in the spec business, we had gotten it up to 55%.
Speaker Change: A few quarters ago.
Speaker Change: As you heard us say today.
Speaker Change: We are we are slowing the start of new spec. So many of those permits we talked about are sitting at permit without ago issued.
Speaker Change: And I think that is the smart way to run this business in the current environment.
Speaker Change: We are very pleased.
Speaker Change: With how well we did in the second quarter in terms of the sale of specs without.
Speaker Change: Larger incentives and one of the reasons, we had a revenue beat in Q2 is because.
Speaker Change: We call it same quarter sell and sell right. So it's not a spec we sold in a prior quarter to settle now, but how many cell and settles do we have.
Speaker Change: Intra quarter and we were very pleased in Q2.
Speaker Change: With that activity and that incentive levels that were manageable and so as we move forward.
Speaker Change: We continue to be very comfortable.
Speaker Change: With Q3 and Q4.
Speaker Change: Number of specs that we believe we will sell and settle and we believe based on current market conditions.
Speaker Change: We have conservatively budgeted incentives those incentives are consistent with what we achieved with our spec sales in Q2 and Thats why we have comfort in the guide.
Speaker Change: Understanding that we have.
Speaker Change: <unk> completed spec homes that we intended to sell and settle and then beyond that of course some of these homes in progress. Many of these holes in progress would be ready to deliver by the end of October or the end of our fiscal year.
Speaker Change: We have projected that some of those will in fact sell over the next five five months and settle but there'll be another bunch of those that while they could.
Speaker Change: Settled by the end of Q4, we are not budgeting for that we are conservatively assuming that they roll into 2026.
Speaker Change: And set up that year, but in terms of the incentive fronts, which I know is a question out there we've read it overnight.
Speaker Change: We're very comfortable with how we budgeted yes, theres more incentive needed to move spec right now in this market than build to order. We are very pleased with build to order margin. It actually is coming in higher than we have budgeted, particularly for the more luxury homes the more expensive homes those margins are.
Speaker Change: Coming in even higher so while the spec margin is a little bit lower it all blends out to 'twenty seven to $5 27, 5% as we did in this past quarter and we are assuming no improvement in the market over the next five five months to deliver the returns and the guidance that.
Speaker Change: We have presented.
Speaker Change: Our next question comes from John Lovallo from UBS. Please go ahead with your question.
John Lovallo: Hey, good morning, guys. Thank you for taking my questions first one is I mean, obviously you did a really nice job managing the business and as you talked about prioritizing price and margin over pace in the quarter.
John Lovallo: Third quarter gross margin outlook of 27% in the quarter implies pretty flat quarter over quarter margin in the fourth quarter. Just curious kind of what are the moving pieces impacting the second half gross margin and any thoughts on sort of the sustainability of this into next year.
John Lovallo: Sure. So it's a great question, yes.
John Lovallo: You are right in your math that the fourth quarter.
John Lovallo: Margin, we expect to be.
John Lovallo: About the same as the third quarter of 2007 to five.
John Lovallo: While there will be some downward pressure because of the spec.
John Lovallo: Cell and settles as I discussed we have some tailwind gross margin.
John Lovallo: From mix.
Speaker Change: There is going to be more luxury delivering in the second half of the year, which is higher margin and theres going to be more out of the Pacific and added the mid Atlantic region, which both support higher gross margin. So when you blend more spec that will have a bit we believe a bit higher incentive.
Speaker Change: With what I just described.
Speaker Change: And the mix coming out of the Pacific and the mid Atlantic and more luxury nationwide.
Speaker Change: It all works out to the guidance we've given.
Speaker Change: Yeah.
Speaker Change: Understood and then.
Speaker Change: Guys beat the top end of the delivery guide by about 200 homes.
Speaker Change: Drove the beat was this product mix, maybe a little bit more spec was it regional mix.
Speaker Change: Does it imply that you are incrementally less optimistic on the full year given the maintained outlook.
Speaker Change: Yes.
Speaker Change: I don't think it necessarily.
Speaker Change: Changes are optimism for the whole year, what we did in the second quarter is simply we outperformed by selling and settling more spec homes than we had projected.
Speaker Change: And we still had a gross margin basis.
Speaker Change: And I think that provides some evidence to the conservatism that we have in our guidance.
Speaker Change: Our next question comes from Mike Dahl from RBC Capital markets. Please go ahead with your question.
Speaker Change: Yes.
Speaker Change: Good morning, and thanks for all the anthem, taking my questions.
Speaker Change: Yes.
Speaker Change: Kip.
Speaker Change: Back half a little bit.
Speaker Change: When we look at it.
Speaker Change: Historically, a senior point about the cadence being consistent.
Speaker Change: The flip side is the first year that we can see looking back where your current backlog.
Speaker Change: Given actually fully cooperating second half deliveries minimum you need more deliveries in the second half than they are correct.
Speaker Change: <unk>, So I know like dog, Marty you talked about.
Speaker Change: You expect solid selling levels completed some of the other progress can you just give us a little more granularity.
Speaker Change: That opportunity like update of the <unk>.
Speaker Change: Number of homes and.
Speaker Change: In progress or completed a what is obviously quite can close what percentage of that 2004 hundred do you think could actually.
Speaker Change: Settle by year end, and then just given the lack of visibility on.
Speaker Change: Margins for homes that you haven't sold a little more detail on how that snack margin progressed during the quarter would help I think.
Mike Dahl: Alright, Mike.
Mike Dahl: We have roughly 64 units left to deliver this year to hit the 11400 midpoint.
Mike Dahl: Roughly 4500 of them should deliver from our backlog remember our backlog is 6050 or so homes.
Mike Dahl: So those homes are sold we know the revenue. They are build costs are contracted so we have limited risk on their cost growing or shrinking and we think we have adequate builders reserves in those cost estimates.
Mike Dahl: So let's take those 4500 off the table, we have roughly 1900 homes that will need to come from our spec inventory that hasnt been sold yet we told you had actually a 1028 of them are completed.
Mike Dahl: So theres no build cost risk there the others are all under construction in fact more than the 900, we would need to sell and settle our under construction. So there's not much cost risk there because they are under contract for construction. So it's really the selling price of those 1900, where there is some potential risk and we.
Mike Dahl: Believe we've accounted for that in this market based on recent comparable sales a lot of which I just mentioned in the second quarter is still allowed us to outperform our guidance for the second quarter, we sold and settled 250 to 300 more <unk>.
Mike Dahl: <unk> in the second quarter than we thought when we entered this.
Mike Dahl: Quarter, and we'd be gross margins still so.
Mike Dahl: So I hope that helps give some comfort and understanding of what we foresee in the next six months and those 900, we have 1000 completed and then we need 900 more that are under construction.
Mike Dahl: We have significantly more than the 900 that could deliver by October 31.
Mike Dahl: So we are not being aggressive and assuming that Oh boy, we need to sell and settle everything we're building to hit that number there will be plenty that will be setting up 2026 that do not sell and settled by the end of this fiscal year. It's also safe to assume that as we manage our spec production.
Mike Dahl: We have a green light for specs is probably where we're doing best.
Mike Dahl: Okay. Okay. That's perfect. Yes very helpful. Thank you my follow up question, maybe just.
Mike Dahl: Well on similar lines, you talked about the stronger margins on build to order a luxury presumably a lot of that in your backlog.
Mike Dahl: So you talked about your backlog gross margin can you give us a sense of where your current backlog gross margin.
Mike Dahl: I think thats inherent in the guidance, we've given you.
Mike Dahl: I mean it.
Mike Dahl: The build to order business runs.
Mike Dahl: 100 basis points or below or above the midpoint in the spec business runs several hundred below late.
Mike Dahl: Lately that that range has widened a little bit on both ends but it still comes out in the middle.
Mike Dahl: And that's why we like the business.
Mike Dahl: We're doing a really good job of.
Mike Dahl: Balancing our speck business with our build to order business and remember.
Mike Dahl: We don't hold spec off until the end, where the client has no choice.
Mike Dahl: We sell a lot of our spec earlier with.
Mike Dahl: So the buyer can still go to our design studios pick all the finishes that allow them.
Mike Dahl: To have a home that really fits their lifestyle and that design studio is highly accretive in margin to the company's margin. So when we're able to spell of Seles Burke a bit earlier, even if its incentivized a little more.
Mike Dahl: There can be some residual margin left after they get to that design studio.
Speaker Change: Our next question comes from Trevor Allinson from Wolfe Research. Please go ahead with your question.
Trevor Allinson: Good morning, Thank you for taking my questions.
Trevor Allinson: You talked about demand slowing throughout the quarter I think that's not very surprising given what we've heard from other builders in the stock market volatility in April. So the question would be then as we got into May here stock market, Obviously got a lot better. If you had a pause on tariffs did you see demand get better as we went into may.
Trevor Allinson: And if so could you put any numbers around that perhaps relative to April relative to <unk>. However, you want to frame it.
Trevor Allinson: So it's very interesting.
Trevor Allinson: February was our first worst month.
Trevor Allinson: We sold one seven homes.
Trevor Allinson: In the month of.
Trevor Allinson: February March and April were pretty consistent.
Trevor Allinson: At two four.
Trevor Allinson: And two three sales in those months and May is trending more like.
Trevor Allinson: March and April.
Trevor Allinson: Now may seasonally as lower sales historically, the March and April but.
Trevor Allinson: June and July the next two months of this third quarter have better sales historically that may so we seem to be trending right now into may consistent what we saw in March and April which were better than February.
Trevor Allinson: I think we and all the other builders have explained it well there and we all know the market is softer than we had all anticipated back in January.
Trevor Allinson: There's a lot of good.
Trevor Allinson: And understandable reasons for that.
Trevor Allinson: With consumer confidence being down with macroeconomic vial.
Trevor Allinson: Volatility with the stock market.
Trevor Allinson: Moving around quite a bit.
Trevor Allinson: There are buyers on the sidelines.
Trevor Allinson: One of the reasons, we are favoring pace over price is because we believe this market is fairly inelastic and to throw more incentive at home sales.
Trevor Allinson: It's going to hurt your margin a lot more of that is going to increase sales because the buyer is not responding over $5 $10 $15 $20000 of more incentive.
Trevor Allinson: Many of them just happened to be on the sidelines, but.
Trevor Allinson: I am very pleased with the company's performance through the second quarter and into the beginning of the third quarter, considering the macro environment out there and I think it has to do with what we said earlier that over 70% of our business is move up and empty nester. Our buyer is more affluent we have a quarter of our buyers.
Trevor Allinson: Paying all cash those get a mortgage or a 70 LTV.
Trevor Allinson: Theyre moving up are there moving down there moving on with their lives they have equity in their homes and so I think we're at a really good.
Trevor Allinson: Niche in the market notwithstanding the fact that the market is a bit softer.
Trevor Allinson: But that's a long answer to your cadence of the quarter, but we were surprised that February was worse and we are may is where we thought it would be which is consistent with what we've seen in March and April.
Trevor Allinson: June should be a bit better July should be a bit better.
Trevor Allinson: We are not anticipating an improvement in this market.
Trevor Allinson: And any of the guidance we're giving.
Trevor Allinson: And as I said, I think we have adequately and conservatively.
Trevor Allinson: Budgeted the incentives necessary for the cell and settle our spec inventory we have.
Trevor Allinson: Okay.
Trevor Allinson: And the second question I guess, it would be more of a follow up on that and kind of double clicking on.
Speaker Change: Some of the comments you just made there because it sounds like your April trends, where we're pretty different from what we've heard from some other bill there's a lot of other builders have made it has suggested that April was much softer so.
Speaker Change: You think that is purely for you guys just a different profile for your consumer as you were just talking about and then if that's the case and you mentioned earlier that you guys build across a pretty wide range.
Speaker Change: <unk> points are you seeing big differences here more recently in demand.
Speaker Change: Relative to what you were seeing earlier in the year across those price points.
Speaker Change: So I apologize if.
Speaker Change: I was misunderstood.
Speaker Change: Overall the results are still softer.
Speaker Change: And our expectations I was comparing.
Speaker Change: You asked for a cadence and I was comparing March and April to February.
Speaker Change: We are not happy with two four and two three sales per month in the March and the months of March and April.
Speaker Change: But that's the market and so what other others are describing I think we would be consistent with that.
Speaker Change: But I just wanted to explain that we didn't see.
Speaker Change: February being best March being next first and then April being the worst because of the cadence what was going on with tariff conversations and macro issues.
Speaker Change: We sort of flattened out in March and we stayed where we were.
Speaker Change: And so I just want you to understand that that I want to put that perspective around it. It is a soft housing market. We all know it and we're doing pretty well in that market and I think we're managing the business extraordinarily well.
Speaker Change: Our next question comes from Sam Reed from Wells Fargo. Please go ahead with your question.
Sam Reed: Awesome. Thanks, so much I wanted to drill down a bit on SG&A just looking at the implied Q4 guide the math would suggest some fairly nice leverage.
Sam Reed: I get anywhere from 30 to 40 bps year over year, which is really great kind of on the back of a few deleverage quarters.
Speaker Change: Could you just talk through kind of what's driving that leverage.
Speaker Change: Just any nuances with regard to kind of your community openings marketing spend which is love some more perspective on kind of how youre going to exit the year on SG&A.
Speaker Change: So I think the biggest issue Sam is that we're going to have a lot more revenue, we're going to have 235 more than $235 million more revenue than last year, and thats really whats driving a lot of the deleverage in Q4 and Q4 I'm talking about Q4.
Speaker Change: We are very focused on SG&A, we're growing community count pretty significantly, particularly in that fourth quarter.
Speaker Change: And so there are pressures, but we've done a really nice job of managing costs were not immune from some of the inflationary.
Speaker Change: Pressures.
Speaker Change: Particularly on the healthcare front seems like something thats grown a little bit more than we'd like.
Speaker Change: But we're managing it very actively and we have the flexibility to continue to manage it actively as the market evolves.
Speaker Change: In addition to leverage Sam are our variable sales costs component of SG&A came down a little bit was a little bit below what we expected in this quarter and this past quarter, which which was a little bit of a tailwind for us.
Speaker Change: Yes, absolutely that helps and then maybe just switching gears here I realize you guys are not offering up at 26 outlook today, you're probably not going to.
Speaker Change: Or another let's call it two quarters.
Speaker Change: Other than to say it does sound like community count is going to be up year over year in 2026.
Speaker Change: I wanted to maybe double click a little bit on what deliveries in 2026 could look like.
Speaker Change: And the basis for that is what the backlog is a little smaller this year than it was last year and just would love to kind of get your sense as to sort of kind of what a good base case assumption for 2026 deliveries could be in the context of that backlog that.
Speaker Change: I appreciate you asking and trying to get us to give some guide on 26, we're not prepared to do that right now that is usually the highlight of the December call.
Speaker Change: But I will with that I will say that.
Speaker Change: The average price of homes in 2006 will be higher that's obvious from the last couple of quarters of sales.
Speaker Change: And where that average prices.
Speaker Change: We are focused and know we need a strong backlog heading into 2026.
Speaker Change: We will have a continuing spec strategy that we know is important.
Speaker Change: As we head into 2026, we will continue to be mindful of market conditions on a very local level as to where we start spec and where we are more cautious, but we are well aware and embrace the importance of our spec strategy.
Speaker Change: And we will have as I said in my prepared comments around 10% community count growth.
Speaker Change: In 2020, so I'm not giving you any numbers, but I will give you a bit of that background and flavor.
Speaker Change: When we open communities, we often get kind of a boost to sales as there is some pent up demand for those communities and we can.
Speaker Change: Moderate that if we want or let it run if we want so that's part of the strategy, we would deploy too.
Speaker Change: Our next question comes from Alan Ratner from Zelman and Associates to go ahead with your question.
Alan Ratner: Hey, guys good morning.
Alan Ratner: Nice quarter and thanks for all the detail.
Alan Ratner: Okay.
Speaker Change: So I would love I appreciate the monthly cadence data and I was hoping just to get a little bit more qualitative commentary on.
Alan Ratner: How do things progress for you guys with the moving pieces in your business. Obviously your buyer is probably more.
Alan Ratner: Tied to the stock market volatility and other builders in April was obviously, a very very challenging months for the stock market. The last few weeks.
Alan Ratner: The markets have rebounded and I'm just curious it doesn't sound like your order data is necessarily picked up meaningfully but have you seen any green shoots either in traffic or just kind of the commentary from your salespeople that stabilization in the stock market is having any.
Alan Ratner: Positive leading indicators on your on your buyer pool.
Alan Ratner: Yes Alan.
Alan Ratner: It's modest it's too early to tell there is no question.
Alan Ratner: Confidence consumer confidence.
Alan Ratner: Number one leading indicator at least for tolls business to more affluent and.
Alan Ratner: Or do rates matter of course, they do when we celebrate.
Alan Ratner: A $5 seven to 830 year no point mortgage of course, we will.
Alan Ratner: But.
Alan Ratner: A little tick.
Alan Ratner: And mortgage rate doesn't affect our client as much for the reasons, we've talked about 25% all cash those that get a mortgage are at 70% we know.
Alan Ratner: A good part of the 30% of first time buyers we sell to.
Alan Ratner: Getting some help from mom and dad with generational wealth transfer and so that's going to take a mortgage payment down because they're probably getting able to put a bigger down payment on the house, thanks to mom and dad.
Speaker Change: So while interest rates are important you are right that the stock market overall confidence.
Speaker Change: Positive news out of DC about resolving some of the tariff conflict.
Speaker Change: All of that matters and it can matter in a big way.
Speaker Change: We have significant under supply of homes in this country, we have terrific demographics that are a tailwind for future growth.
Speaker Change: And we've all seen it I've been doing this 35 years when this turns.
Martin: Exactly 30, thank you Martin.
Speaker Change: Apparently today.
Speaker Change: I do with my 60 <unk> call I didn't know is my 30 <unk> anniversary today.
Speaker Change: But we've all seen it when this market turns.
Speaker Change: With those <unk> and when so many people on the sidelines just waiting to feel better. So they can move on with their lives look out because its going to come.
Speaker Change: But I can't tell you in the last 234 weeks as the market the stock market has stabilized that we've seen anything.
Speaker Change: Definitive theres, just some modest conversations and color that we get out of sales.
Speaker Change: The traffic's up the quality of Traffics up we've had a few openings lately of new communities with significant intra.
Speaker Change: Interest at the opening we've had a couple of where we've gone back to.
Speaker Change: The best and final offer.
Speaker Change: Where we let people bid up to five houses that were offered because there's so much interest. That's the exception don't I don't need that to be a headline right now but.
Speaker Change: We'll keep an eye on it.
Speaker Change: We're not heading into the spring season, we're heading into the summer. So it is a little bit different time. It is a good time to sell finished spec right because buyers want to get into their new home by the school year.
Speaker Change: To not disrupt the kids and so you need to buy a house in the next couple of months to get that house to close by the end of August and so and we have time to that appropriately.
Speaker Change: We know that you want it brings finished spec into the market at the right time when buyers want it which is that generally the summer months. So we'll have to see.
Speaker Change: Again, another long answer that no I don't see anything definitive yet.
Speaker Change: Yet but.
Speaker Change: But I wouldn't be surprised if it comes if theres more stabilization in the macro market.
Speaker Change: Got it I appreciate the commentary there.
Speaker Change: The question Theres, obviously, a lot of headlines associated with immigration and what's going on there.
Speaker Change: Was hoping you could just refresh.
Speaker Change: My memory, what percentage of your buyers are foreign nationals, I guess, specifically kind of H <unk> visa holders and have you seen any.
Speaker Change: Changes in demand among that cohort of buyers here to date.
Speaker Change: It's less than 5%.
Speaker Change: For the first part of your question and.
Speaker Change: No we haven't seen.
Speaker Change: Any any.
Speaker Change: Any change over the since.
Speaker Change: Since the new year.
Speaker Change: The Chinese buyer in particular.
Speaker Change: And again that may be a Chinese national maybe Chinese American, but that fire in particular is still very strong for us in California.
Speaker Change: Your next question comes from Alex Barron from housing Research Center. Please go ahead with your question.
Alex Barron: Yes. Thank you.
Alex Barron: I wanted to focusing on your comments about.
Speaker Change: Having.
Speaker Change: More than enough specs to your numbers in the fourth quarter.
Speaker Change: It was kind of going back.
Speaker Change: Several years now.
Speaker Change: It looks like you're delivering have exceeded your orders fall quite a bit as the backlog has been.
Speaker Change: Coming down from a peak of 11700 or so of the 5000 now.
Speaker Change: So can you explain that dynamic I mean, how many total homes I guess are sort of not in the backlog that are under construction I guess facts.
Speaker Change: To help us better understand those dynamics, a little bit better.
Speaker Change: Sure Alex So I think over that period of time, you've seen us move from a 90% build to order book business to a 50%, 55% spec business, where we sit currently so the backlog.
Speaker Change: Coming down is not <unk>.
Speaker Change: Unplanned.
Speaker Change: And we open the call mentioning that we had 1028 completed specs that could be sold and settled in the next.
Speaker Change: Six months, we have another what was the number 2400 specs at various stages of construction.
Speaker Change: And so we will have more than enough.
Speaker Change: Our completed specs by the end of the year to deliver the roughly 900 additional sell in settle specs on top of the 1000 and settle to sell and settle specs to hit our delivery guidance factoring in roughly 4500 homes coming out of backlog as well.
Speaker Change: Got it and then sign those 2400, we have another 2000.
Speaker Change: Putting permits pulled homes that we will begin production of a certain percentage of depending on how the market evolves and that's the bucket that we have slowed yes and are making very local.
Speaker Change: Decisions on based on market conditions.
Speaker Change: Got it and so when would you expect I guess your.
Speaker Change: Your backlog to sort of hit bottom in that sense and start trending back up.
Speaker Change: Thats kind of towards the end of this year.
Speaker Change: Well with the slowing of spec starts.
Speaker Change: Hi.
Speaker Change: I don't know if it's the end of the year exactly but yes, there will be a point, where you will you should see that go up again, it's all it's market conditions driven right, but we have.
Speaker Change: Recently.
Speaker Change: Seen a bit of a move.
Speaker Change: Back towards a desire for build to order.
Speaker Change: Versus faster delivery of a spec home and I think that's for a couple of reasons.
Speaker Change: When you have a bit of a softer market and higher rates. There are buyers I'd say this is my dream home I wanted to design it to exactly my case I want to be able to customize it and I'm willing to wait it may take me a little longer to sell my home.
Speaker Change: Maybe the rates come down when I have to lock in 60 days before that home has delivered and I sort of like the idea and the comfort of this move occurring in 12 months to my Dream home versus 234 months to spec inventory and we are we are feeling a bit of that.
Speaker Change: Now, which we are encouraged by frankly because.
Speaker Change: Our special sauce is choice and we've talked about the higher margin and build to order, it's not a dramatic change, but we are beginning to see.
Speaker Change: Out in the field a bit of a bit of a leaning.
Speaker Change: Our preference towards the build to order versus the spec.
Buck Horne: And our next question comes from Buck Horne from Raymond James. Please go ahead with your question.
Buck Horne: Hey, Thanks, guys good morning.
Speaker Change: I wanted to add a little bit about the.
Speaker Change: Hey, I wanted to ask a little bit about the land spend in the quarter. It would seem like it was one of the higher quarterly amounts you guys have.
Speaker Change: In recent memory added some additional loss was there any particular.
Speaker Change: Land deal or anything noticeable that kind of drove the the surge and should we have any other takeaways in terms of what does that mean about your confidence about the land market.
Speaker Change: Yes, so our land spend in the second quarter was $362 million compared to $360 million in the first quarter.
Speaker Change: So we have spent $763 million for the full six months.
Speaker Change: Do you think it may ratchet up in the back end of the year, but a lot of that depends on the timing of deals is the close there was nothing in particular in the second quarter that drove the number to be consistent with the first quarter, Yes, I think so.
Speaker Change: For us to move forward and close on the ground in this environment means it's still pencils, we may have been able to renegotiate price or take down terms.
Speaker Change: Where land banking more than we ever have.
Speaker Change: New deals coming in I think we're at 40% guidance is that sort of number.
Speaker Change: All of the news the new deals the new deals coming in or being land bank.
Speaker Change: But our comments about due to softer market conditions were being more cautious and we expect land spend to probably come down in 'twenty six.
Speaker Change: I wouldn't read anything into the last few quarters or the next few quarters in terms of land spend because those deals are baked and they still work and so we're moving forward maybe on the same terms or maybe on modified terms.
Speaker Change: But it's really the next deal contracted four which may have two or three years of entitlements ahead of it or it may have.
Speaker Change: Clothing in six months it all depends on what the land deal is but those are the ones that.
Speaker Change: Over time at least at the moment.
Speaker Change: The land spend may come down a bit but at this market move improves.
Speaker Change: Then.
Speaker Change: That may also change and we may find ourselves by more ground, but we're very happy to have.
Speaker Change: The 80000, plus or minus lots that we own and control, we're very proud of moving.
Speaker Change: More and more lots to the option category and that gives us great flexibility.
Speaker Change: And conservatism when it comes to the next deal because our land bank is in such great shape.
Speaker Change: Got it got it very helpful clarification. Thank you and just with a little bit of timing can you just walk us through geographically how the markets were shaping up versus your expectations any any standout surprises to you in terms of how things progressed during the quarter, either with economic sensitivity either strength or.
Speaker Change: The downside or upside.
Speaker Change: Sure so the better markets.
Speaker Change: We're in New Jersey, Pennsylvania, and New York.
Speaker Change: It did well.
Speaker Change: Metro Charlotte Atlanta.
Speaker Change: It's just the eastern seaboard.
Speaker Change: Did well.
Speaker Change: West Las Vegas, Denver, Boise, Idaho did well and all of California did well.
Speaker Change: Softer spots Pacific northwest for Us Thats, greater Seattle, and Portland, Oregon.
Speaker Change: Most of Florida parts of Texas and Phoenix.
Speaker Change: Continue to be on the software side of our business.
Speaker Change: And ladies and gentlemen, with that we will be concluding today's question and answer session at.
Speaker Change: At this point I'd like to turn the floor back over to management for any closing remarks.
Jamie: Jamie Thank you very much you've been terrific.
Speaker Change: Thanks, everybody for your interest and support we are always here to answer any follow up questions. You may have.
Speaker Change: Have a wonderful memorial day weekend.
Speaker Change: And summer and we'll see you soon and thanks, so much take care.
Speaker Change: And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending today's presentation.
Speaker Change: May now disconnect your lines.